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An Analysis of the Critical Drivers of Firm Performance for Profitable Grid Owner Companies in Germany

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An Analysis of the Critical Drivers of Firm Performance for Profitable Grid Owner Companies in Germany An Analysis of the Critical Drivers of Firm Performance for Profitable Grid Owner Companies in Germany Hagen Peschke A thesis submitted to the University of Gloucestershire in accordance with the requirements of the degree of Doctor of Business Administration in the School of Business and Technology February 2020 II Abstract This thesis focuses on the new networking and cooperation phenomenon known as grid owner companies in Germany, in which electricity and gas distribution are governed by rights-of-way contracts. A process began ten years ago to phase out more than 20,000 rights-of-way contracts throughout Germany. Often, a grid owner company is established whose shareholders are the current energy company and the municipality. Moreover, large numbers of rights-of-way contracts between municipalities and energy companies contain options to set up grid owner companies. The main aims of this thesis are to contribute to the understanding of the practical phenomenon of grid owner companies from a financial and legal perspective by identifying the population of German grid owner companies and by analysing the relationships between the firm size, the legal form, the ownership structure and performance of these companies, measured by the Return On Assets ratio (ROA). Based on the philosophical stance of positivism, multiple linear regression analysis using ordinary least squares is applied to sample data from 2010 to 2015 in order to analyse the relationships between the firm size, the legal form, the ownership structure and performance of German grid owner companies. According to the findings, a total of 170 German grid owner companies have been identified. The findings of the research indicate that population and area as proxies for firm size, private participation quota and the legal form of a limited partnership with a limited liability company as a general partner have a positive and significant influence on ROA. This thesis is the first comprehensive study that is solely dedicated to the new phenomenon known as grid owner companies in Germany and provides fundamental financial insights. In particular, municipalities and energy companies that are faced with the decision on the design of a grid owner company are recommended to choose large grid owner companies with the legal form of a limited partnership with a limited liability company as general partner to achieve a high level of firm performance. III IV Student Declaration I declare that the work in this thesis was carried out in accordance with the regulations of the University of Gloucestershire and is original except where indicated by specific reference in the text. No part of the thesis has been submitted as part of any other academic award. The thesis has not been presented to any other education institution in the United Kingdom or overseas. Any views expressed in the thesis are those of the author and in no way represent those of the University. Signed Date 22th February 2020 Doi: 10.46289/OQAM1944 V VI Table of Contents Table of Contents ....................................................................................... VII List of Abbreviations ................................................................................. XIII List of Tables ............................................................................................ XVII List of Figures ............................................................................................ XIX Publications ............................................................................................... XXI 1 Introduction and background of the research .......................................... 1 1.1 New phenomenon of grid owner companies ......................................... 1 1.2 Decision-making situation ......................................................................2 1.3 Economic environment of grid owner companies ................................. 4 1.3.1 German energy market .........................................................................4 1.3.2 Renewable energies and Germany’s energy transition ..................... 7 1.3.3 Trend towards remunicipalisation of energy sector........................... 8 1.3.3.1 Remunicipalisation ............................................................................8 1.3.3.2 Motives and objectives of municipalities ....................................... 13 1.3.3.2.1 Fiscal and tax-related interests .................................................... 13 1.3.3.2.2 Control and influence over local infrastructures ........................ 14 1.3.3.2.3 Limitation of liability and economic risks ................................... 15 1.4 Legal environment of grid owner companies ...................................... 15 1.4.1 European and German energy law .................................................... 15 1.4.2 German municipal law ........................................................................ 16 1.4.3 Rights-of-way contracts ..................................................................... 18 1.4.4 Concession award process ................................................................ 20 1.4.5 Regulation ...........................................................................................22 1.4.6 Incentive regulation of electricity and gas networks ........................ 23 1.5 Research motivation .............................................................................. 25 1.6 Purpose of the research ........................................................................ 27 1.7 Research objectives and research questions ...................................... 28 1.8 Significance of the thesis ...................................................................... 29 1.9 Structure of the thesis ........................................................................... 36 1.10 Summary ..............................................................................................37 VII 2. Literature Review and Hypothesis Development .................................. 39 2.1 Introduction ........................................................................................... 39 2.2 Aims ....................................................................................................... 40 2.3 Grid owner companies .......................................................................... 40 2.3.1 Methodology of review ....................................................................... 40 2.3.2 Critical analysis of literature .............................................................. 43 2.4 Critical drivers of firm performance ..................................................... 66 2.4.1 Firm performance ............................................................................... 66 2.4.2 Firm size .............................................................................................. 69 2.4.3 Firm size and firm performance......................................................... 75 2.4.4 Ownership structure ........................................................................... 79 2.4.5 Ownership structure and firm performance ..................................... 79 2.4.6 Legal form ........................................................................................... 84 2.4.6.1 Introduction ...................................................................................... 84 2.4.6.2 Public limited company ................................................................... 85 2.4.6.3 Limited liability company ................................................................ 86 2.4.6.3.1 Company-specific features .......................................................... 86 2.4.6.3.2 Company organs .......................................................................... 87 2.4.6.3.3 Liability .......................................................................................... 88 2.4.6.3.4 Shareholders’ agreement ............................................................. 89 2.4.6.3.5 Share contributions and profit participation............................... 89 2.4.6.3.6 Accounting, auditing and disclosure .......................................... 90 2.4.6.3.7 Taxation ......................................................................................... 91 2.4.6.4 Limited partnership with a limited liability company .................... 91 2.4.6.4.1 Company-specific features .......................................................... 91 2.4.6.4.2 Company organs .......................................................................... 92 2.4.6.4.3 Liability .......................................................................................... 93 2.4.6.4.4 Partnership agreement ................................................................. 93 2.4.6.4.5 Partnership contribution and profit participation ....................... 94 2.4.6.4.6 Accounting, auditing and disclosure .......................................... 94 2.4.6.4.7 Taxation ......................................................................................... 95 2.4.6.5 Unified limited partnership ............................................................. 96 2.4.6.6 Limited partnership with a public limited company ...................... 97 2.4.6.6.1 Company-specific features .......................................................... 97 VIII 2.4.6.6.2 Taxation .........................................................................................97 2.4.7 Legal form and firm performance
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